The question of deregulation


What might happen if supermarkets enter the pharmacy industry? asks Michael Rhodes

Much debate has arisen about what happens next in the pharmacy industry and regrettably, some think the current arrangements should remain.

Instead of contributing to the debate they’ve personally attacked or tried to attack those who have.

We’ve called for substantial change and said the CPA arrangement was a dinosaur of market inefficiency.

And we’ve stated there are two elephants in the room; 1) poor pharmacist pay and 2) calling for the entry of supermarkets be allowed.

We envision a future, based on our research when supermarkets do enter the pharmacy industry and in doing so these are our 15 major predictions.

  1. CPAs and location rules will be scrapped. They restrict supply and access to medicines at the expense of the elderly and concession card holders who generate 80% of dispensed volume.
  2. The buy price of prescription medicines should fall for everybody, facilitated by the negotiating strength of the supermarket chains and the ability to source medicines both locally and internationally, thus increasing buyer power.
  3. Supermarkets should lead technology innovation in partnership with government because they have the scale and track record to do so. This will include digitising the consultation to collection process as well as driving for transparent innovation in supply chain efficiency.
  4. Supermarkets will have at their core, data transparency for government.
  5. The AHI fee reimbursement for supermarkets may be less than that for community pharmacies because they already have fixed cost infrastructure they can build upon.
  6. Demand for pharmacists will definitely increase and so will their salaries. Supermarkets will be at the forefront of ensuring pharmacists are paid what they’re worth.
  7. In-store pharmacists will be able to focus on dispensing and services and not be consumed with companion sales activities. They won’t have to be as there is already enough traffic driving these sales.
  8. Supermarkets will bring an incremental 4.1 million hours of opening time to the industry in over 1000 additional locations and we believe this is conservative.
  9. The CSO provision in CPAs could be removed, with funds diverted to innovation that delivers efficiency, access, transparency and consumer value.
  10. As a trade-off for supermarket entry, community pharmacies as we know them will allow for the co-location of GP services in their premises, allowing for two streams of revenue to absorb fixed costs, making good community pharmacies even stronger.
  11. Loss making community pharmacies will gradually cease to exist, because they will fail anyway. Government will no longer fund loss making businesses.
  12. Rural access to medicines should increase due to supermarket penetration and supermarkets nationally will be storage hubs for high cost and specialised medicines thus ensuring all consumers in all locations benefit from all medicine access.
  13. Working in partnership with the government a medicines pricing authority would be set up to assist all buyers of PBS medicines so that international best and lowest price will be achieved.
  14. Convenience will trump loyalty in many purchasing decisions and major discount chains will face pressure to compete effectively against supermarkets’ ability to be price competitive and innovative. Mid-tier and service-centric pharmacies will prevail particularly on the back of allowing GPs to be co-located within pharmacy premises.
  15. It will take five years for the supermarket industry to fully ramp up.

Some will fear, while others will embrace, supermarket entry from whatever frame of reference they have.

For us, based on our research there is no doubt it will bring substantial consumer benefits, societal value and increases in pharmacist remuneration.   

Please comment below. But, before you do we ask you to read our two reports (Part 1 and Part 2), our response (Part2a) to the King Review as well as the interim King Review itself to be fully informed. They are most worthwhile and provide the necessary context and research for these predictions.

Michael Rhodes is a management consultant and director of Rhodes Management.

Previous Pharmacists integrated into home nurse visits
Next World news wrapup: 27 July 2017

NOTICE: It can sometimes take awhile for comment submissions to go through, please be patient.

47 Comments

  1. Paul
    27/07/2017

    Higher pharmacist salaries? I think not! In the UK a number of years ago, I worked as a district manager for a large pharmacy chain. In order to reduce pharmacist salaries in some locations the company chose not to pay above a certain hourly rate. It resulted in a shortage of pharmacists working for the company. A decision was made by higher management to temporarily close these pharmacies when no pharmacist could be found to work at that lower rate. The result?…Within a few weeks, pharmacists began to accept the lower rate.

    • PharmOwner
      27/07/2017

      Absolutely correct. Supermarkets would only employ 1 pharmacist – because they have to – and 5-6 techs to do all the processing of scripts. Junior check-out chicks chewing gum can process the sales. Pharmacist salaries would NOT go up. Service and services provided would NOT improve. Anyway, we already have supermarket ownership of pharmacies. They’re called Chemist Warehouse.

      • Andy Harris
        27/07/2017

        Umm so it’s also like most other franchise pharmacies out there that use as much cheap labour as possible and minimal staffing to maximise profits?

        Or do you think most owners employ more staff then they could and don’t constantly watch wage percentage?

        • PharmOwner
          27/07/2017

          Hi Andy,
          I don’t think most owners employ more staff than they need to, but different owners will employ a different mix of staff. I choose to employ an additional pharmacist on a part-time basis instead of a pharmacy assistant full-time because I believe they’re better value, even if it’s just for a few days a week. I also pay my pharmacist above award wages. The point I was trying to make was that I think it’s flawed logic to assert that supermarkets would magically “raise the bar for customer service and efficiency” and improve the lot of employee pharmacists.

          • Andy Harris
            27/07/2017

            Yes I agree I do not think supermarkets are the magic answer to low wages, however I do understand the frustration held by many employee pharmacists that things could not get any worse for them no matter who owned the business.

            Employee pharmacists are not owners, you can’t blame them if they don’t care about the owners monopoly. Just like employees aren’t suprised that many owners don’t care about low wages.

          • The Cynic
            28/07/2017

            Hi Pharmowner. It would be useful to not use the generic ‘above award wage’ phrase when discussing salary issues. The award as a bench mark is quite pointless.
            I enjoy your contributions to these forums so do not take this as a criticism. Name the salary you pay. And perhaps state what you were paying 20 years ago.
            That would perhaps mean something.

          • PharmOwner
            28/07/2017

            Hi The Cynic (apt handle, that)
            I’m paying $40 per hour. I wasn’t paying anything 20 years ago, I’ve only been an owner for a few years. Before that, I was – you guessed it – an employee. I very much doubt whether supermarkets would contemplate paying above award wages.

          • The Cynic
            28/07/2017

            Thanks PO.. that’s something that is meaningful. Something measurable.
            Arguing that one pays ‘over the award’ has always irked me.
            Respect for posting real figures!

      • GlassCeiling
        28/07/2017

        Young pharmacists would be in demand and wages will skyrocket

      • Mick Rhodes
        28/07/2017

        Hello Sir – From our research, we have calculated that to provide store hours coverage in most supermarkets would require at least 2.6 (3) pharmacists per store. We have received no compensation nor are we aligned to anybody for our work and end note reference 1 in our second report clearly states that. As for hedge funds, private equity firms, banks and super funds I doubt strongly they would have the capacity, interest and market penetration to support the National Medicines Policy like existing pharmacy and supermarket retail businesses do. Notwithstanding if they chose to, and access to medicines at cheaper prices for the consumer and government were a result then yes we would support this as it would be a patient centric outcome.

        • The Cynic
          28/07/2017

          Good afternoon Sir.
          I do not intend to dismiss your research out of hand. However it should be made clear whether or not your organisation received any support from major retailers or other interested party.
          Who funds your activities.
          Thank you.

          • Mick Rhodes
            07/08/2017

            Sir/s, I funded the research myself. We are a front for nobody, this is stated in the end note references in our 2nd report and my contact details are in the reports should you have any further questions. We are completely independent.

        • PharmOwner
          28/07/2017

          Hi Mick,
          Thanks for taking the time to respond to my post about your independence. In your calculations estimating the number of pharmacists required per supermarket, did you include the impact of dispensing robots? We will have to agree to disagree about whether big companies such as we have already mentioned have the capacity and interest to buy pharmacy groups for their cashflow.

          • Mick Rhodes
            07/08/2017

            Hello Sir, The estimation we put forward for coverage does not consider robotic dispensing. It merely covers the hours of operation required. Notwithstanding this it is our opinion that robotic dispensing represents a major productivity and accuracy opportunity which would allow for pharmacists to be more focused on providing higher levels of quality service (a good thing). Our research shows that actually providing quality of services with 1 pharmacist dispensing above 150 scripts per day is at best “difficult”.There may be an opportunity to have less pharmacist intervention and still be able to provide this service but the detailed workflow would need to be determined accordingly.

  2. fiquet
    27/07/2017

    As an ECP, I can’t wait until the current monopoly on location is dismantled, and young pharmacists will be able to buy their own pharmacy, for a reasonable price. The pharmacy industry needs a shake-up, and fortunately, the dinosaurs who are used to government renumeration raining down on then will die out. Pharmacies need to create value for their patients – whether by discounting, individualising services or through specialised services (eg. Webster packs, sleep apnoea)… or perish. It’s just not enough to do scripts and think that good service is asking a customer how their day is going!
    I’m looking forward for the supermarkets raising the bar industry-wide in pharmacy for customer service and efficiency. It will be hard to compete for some, but if your pharmacy operations are below par, you can’t be bolstered by the government anymore!

    • Jarrod McMaugh
      27/07/2017

      Whether the current arrangement is the right one or not Anna, dismantling overnight would not actually assist you in becoming a partner or sole-owner of a pharmacy, due to the market power of supermarkets and other interested parties that could immediately purchase pharmacies. In the short-to-mid term, the only way to allow ECPs to enter the market by altering location and ownership rules would be to restrict them further (and I’m not necessarily advocating for this).

      I became a partner recently, and at the time I was a divorced single-parent of two teenagers. I had zero hope of becoming a partner. My business partner approached me, mentored me, and helped me become an owner…. and my share in the business is more than a majority (ie, I”m not an indentured staff member with 5 or 10% equity).

      Whether supermarkets should enter the market or not is something we will always need to discuss, but in my personal opinion, the current supermarket market share won’t be conducive to innovation…. I would expect short-term price explosions if supermarkets enter the market and buy up as many as they can purchase, then those remaining will be valued very very poorly. I don’t think this would benefit ECPs, employee pharmacists, or our patients. Ironically, I would predict the main beneficiaries would be those current owners who are in a position to sell up quickly.

    • james jefferies
      27/07/2017

      Sorry fiquet, but your dreaming. Dismantling location rules wouldn’t help you in the slightest. Some of the reasons Jarrod has already covered.
      The only reason an existing pharmacy’s value would drop is if CWH opened up next door (I don’t think you’d want to buy it then). So you’d be left with the option of opening your own pharmacy in a suitable location. Depending on the size of the premises and location and services offered, you’d be looking at a few $100k for fitout and stock. You’d have to sign a lease for X amount of years. Then on day one that you open, you have no regular customers and no regular income (to pay the bills). So you have to start convincing the other local pharmacy’s customers that you’ve got something more/better to offer than their existing pharmacy. Say you do have something to offer it’s going to take time and a lot of effort to build your turnover to the point where you can repay the loans, rent and earn a reasonable wage.
      How do I know this? I’ve opened a new pharmacy in an established surburb with surrounding established pharmacies and it’s a lot of hard work.

      Then guess what, because you’ve campaigned and got rid of location rules. CWH opens up next door to you and takes all your customers because they have deeper pockets. There’s a couple of years left on your lease and no income and you’re now bankrupt. Be careful what you wish for, it may come true!

      • Andy Harris
        27/07/2017

        Or you just find a rural town with one or 2 pharmacies which each do in excess of 500 scripts daily and open a pharmacy there. Yes might cost you 200 or 300k but gets you potentially a third of the business which was previously valued at 5-10mil for the town as a whole. And just imagine if you were born and raised in that town but locked out of the market and the current owners are from interstate and everyone knows it!

        I would take that risk everyday of the week!
        I am sure this story is not unusual…

      • GlassCeiling
        27/07/2017

        In a location rule free environment rents will be MUCH cheaper.
        Fit out can be simple and well under 100k.
        Finance opening stock purchase.
        Not expensive!!
        Business will take time to grow but a good offer in the right location will have a great chance to succeed.
        Yes there is a risk of CW rocking up.. wait… You still need a pharmacist to open a CW right?? Who works for 25 bucks an hour when you can go it alone for low entry costs. The CW impact is vastly overstated. CW will have to negotiate and pay a healthy salary to maintain pharmacist workforce.

        • Mick Rhodes
          28/07/2017

          Hello Sir – Our research concurs with what you are saying. The King Review also called out that the cross ownership monopoly of some pharmacies drives up prices to consumers and may shopping centre rents are bid out to the highest bidder. If supermarkets entered the industry demand for “in shopping” centre rents would reduce as many will choose to not be located near them and compete on a different value proposition.

          • Charlotte Hutchesson
            28/07/2017

            But would it be easier or near impossible for a young pharmacist to get into ownership? What does your research say about that?

          • Andy Harris
            28/07/2017

            Do you think it is easy or near impossible at the moment?

            In my experience it seems damn near impossible especially if the owners know you live in the region and
            Your family lives there etc etc! Current owners seem happy to have staff work the business while they collect the cheques. Why offer partnership when they can just pay someone an average wage to do the job of a partner?

            Why should people be denied the opportunity to run their own business?

          • Mick Rhodes
            07/08/2017

            Madam, Thanks for your question. Anecdotally, as chain pharmacies gain a further foothold in the industry independent ownership of a pharmacy for you is likely to be difficult (opinion not research). However if you join a chain pharmacy, expansion for that chain is often premised on being offered a shareholding in the business, so that they can use your pharmacist registration to expand in more locations (noting for example that in NSW only registered pharmacists can have a financial interest in a pharmacy and this interest is geographically limited).

  3. Andy Harris
    27/07/2017

    Nope location rules are ridiculously restrictive!

    In my home town the number of pharmacies went from 6 to 2 as they were gobbled up and turned into a monopoly.

    A group recently tried to lobby the minister but was turned down.

    Next town over- same story.

    I am sure the towns I know are not alone out there.

    • Andrew
      28/07/2017

      I can think of two regional towns desperate for a competitor. The same operator owns all the pharmacies (doesn’t work at any of them, or even live locally) and doesn’t provide great service or prices.

      If location laws didn’t exist I’d open up right next door, drop prices by a couple of percent, service the beejessus out of whatever customers I got and reap the rewards of my superior service. Everyone would be a winner except the lazy millionaire.

      If only…

      • The Cynic
        28/07/2017

        Leeton???

        • Andy Harris
          28/07/2017

          No Queensland in my case. BUT I am sure there are multiple examples in every state in the country

    • The Cynic
      28/07/2017

      L##ton??

  4. Andaroo
    28/07/2017

    Any is this guy still being given attention? Everything that comes out his mouth is storytelling.

    • Mick Rhodes
      28/07/2017

      Hello Sir – I can assure you that the “storytelling” you are referring to is backed up by extensive research. The King Review and the Hall and Partners Open Mind reviews are also backed up by extensive research.

      • The Cynic
        01/08/2017

        Good day Sir.
        The forum would like to know who funds your organisation.
        Thankyou.

        • Mick Rhodes
          07/08/2017

          Sir – see my answers through this thread. Nobody funds us except me. We are completely independent – see our first 2 end note references in our second report for more information.

  5. Nicholas Logan
    28/07/2017

    Did we find out who funded the research?

    • Willy the chemist
      30/07/2017

      It is a front…

      • Mick Rhodes
        07/08/2017

        Sir/s, I funded the research myself. We are a front for nobody, this is stated in the end note references in our 2nd report and my contact details are in the reports should you have any further questions.

        • Willy the chemist
          08/08/2017

          And you Sir have derived at the wrong conclusion with your research.
          I don’t believe in complete deregulation of essential services.
          Just like deregulated and privatised university…..and the introduction of a medical degree whereby only the rich students can afford.
          http://www.news.com.au/finance/work/careers/macquarie-university-launches-250000-medical-degree/news-story/747621cd10a82525bf904012a658c4ab
          And evidently even the Greens is proposing the reintroduction of Regulations on Electricity pricing. And they went so far as to say that deregulation of electricity prices have failed.
          http://www.news.com.au/national/breaking-news/greens-want-electricity-price-regulation/news-story/7629ad346f0a5ddd90e8ec4ca734745b
          And apparently you Sir, have failed to stare evidence square in the face and tell it objectively as it is. It’s no different from the gun lobby saying that “guns don’t kill but people do.”
          I’ve don’t need research or more academic trophies to tell me what I already know. Corporatised / privatised deregulated healthcare is a failure as in most countries with the greatest failure being the king of Private Enterprise the Mr USA. Unless you Sir live through it without private health insurance, you Sir will not have experienced the plight of hundreds of thousands of Americans.

          My learned friend Sir, do you know what most ordinary Americans say when they first meet an Australian? They often commented how good our healthcare is and how ‘damn’ lucky we are.
          Close second thing is our minimum wage. No joke.
          Off course they don’t comment on our taxes. But no joke, it’s healthcare and minimum wages. I only walk amongst ordinary Americans, not Larry Page or Warren Buffett. I’m sure it’ll be quite different conversation.

          • Mick Rhodes
            09/08/2017

            Sir, Thank you for your contribution. The sarcasm of your initial false assertion was duly answered and our totally independent research stands based on staring evidence in the face. Please enjoy the rest of your day as a busy pharmacist no doubt.

          • Willy the chemist
            09/08/2017

            Totally independent yet totally inaccurate and not free of impartiality. I wonder if this discriminatory bias is inherent on a philosophical level?

          • Mick Rhodes
            17/08/2017

            Sir, As I said previously for the 2nd time and now again for the 3rd time to ensure complete clarity for you, the sarcasm of your initial, and now continuing false assertions were duly answered, without philosophical bias and our totally independent and impartial research stands, based on staring evidence and facts in the face.

          • Willy the chemist
            17/08/2017

            And Sir, as I’ve previously provided evidence whereby deregulation of certain markets have resulted in less efficiencies, and quoted research from The Commonwealth Fund on the prime example of a deregulated health market, but you stoically ignored these and continually stuck to your “evidence and facts”.

            Derived ‘evidence’ or rationalised evidence is inferior to empirical evidence as in evidence as observed through real-life experimentations.

            For example, Prof S King claimed that deregulation of electricity retailers will lead to lower prices. This is rationalist view.
            Empirical evidence is observation of the experimentation whereby prices were lower before the deregulation of electricity retailers.

  6. John Smith
    28/07/2017

    entertained by reading the contradicting comments by some owners 😀

  7. Expat In Blighty
    30/07/2017

    From a UK perspective, personally experiencing supermarkets in pharmacy…

    2. Why is it the company with $38 billion US market cap is always getting hammered by the news and regulators in the UK for excessive price gouging? (another example just this week)
    3. After a couple of decades I can’t think of any examples where the industry followed any so-called innovation by supermarkets over here.
    6. An initial increase in wages would be expected due to supply and demand. The second premise is absurd. Supermarkets in no way try to increase salaries. They pay the least they can get away with.
    7. Be prepared for 50 questions a day asking where the milk/bread is, what’s the price of this tin of baked beans, and is there any more of that topside steak that’s on special out the back? (Why can’t you leave the pharmacy to go look for me?).
    10. Again, another magic idea for revenue touted in the UK years ago that came to absolutely nothing for many reasons. Jingly keys.
    11. Yep, just like the UK. Be wary though, as previous government policy expanded the number of pharmacies here by 20-30% in the name of access, then they turned around a few years later and said there’s too many so we better close 1/3 of them (which naturally ended up being the smaller, preexisting independents)
    12. False economy. All those expensive medicines that go out of date will be paid for by higher prices either on medicines or general sale items. Do you think the supermarkets are a charity who’ll sacrifice their bottom line for the good of the community? Ha!
    13. That doesn’t need deregulation, does it? Reckon you’ll have a big fight from the existing manufacturers/suppliers though.

    “Some will fear, while others will embrace, supermarket entry from whatever frame of reference they have.”

    My frame of reference is seeing it in action for almost two decades. Does that count? Feel free to stop on by for a chat about how great it is when you’re next in Old Blighty.

    • Expat In Blighty
      30/07/2017

      Oh, I forgot. Two years ago in the UK one of the largest supermarket chains sold all 277 of their in-store pharmacies to a pharmacy chain (I’m guessing it wasn’t because they were too profitable!). The purchasing pharmacy chain were crowing about how they’d be offering more services than the supermarket. I’m not a fan of either of them but want people to be aware that deals like this take place in the real world. Allowing pharmacies in supermarkets is a back door way for a chain to get hundreds of sites in one foul swoop in the future. Worth keeping in mind.

  8. Expat In Blighty
    30/07/2017

    Hi Stephen,

    Although I hope supermarkets don’t get pharmacies for reasons stated in my other post on the page, if they do I certainly hope they take the opportunity to set a higher award. First thing I’ve read to get me to consider it (but answer is still no).

    From someone who’s seen supermarket pharmacies in practice for almost two decades, most are at the bottom of the prescription volume ladder…and I’d bet a random non-vital body part things won’t be different in Oz so don’t expect economies of scale from that sector.

    Internet pharmacy, however, is devouring pharmacies in the UK at a rate of one a week (in terms of items), with the largest player doing over 167,000 script items a month and growing rapidly. Just counting the days until Amazon buy them out.

  9. Michael Khoo
    31/07/2017

    Mr Rhodes, in your propositions, what measures have you proposed to prevent a “Norwegian” scenario occurring in Australia?

    I suggest that all early career pharmacists should study the consequences of deregulation in Norway before concluding that location and ownership rules are standing in the way of career progression to ownership. I recall an EU study into the destruction of community pharmacy in Norway lead to the cancellation of proposed deregulation of the industry in Austria and Spain.

    • Mick Rhodes
      07/08/2017

      Sir, Yes the industry consolidated ownership to 4 major players comprising 79% of the market and most importantly the number of pharmacies where medicines can be accessed grew by 50% – meaning consumer access to medicines was greatly enhanced. The industry also greatly digitised to embed efficiency in the consultation to collection process.

      • Michael Khoo
        08/08/2017

        And most pharmacies opened within walking distance of their competitors, and a large number of small towns lost their local pharmacies altogether. The Norwegian Government had to consider restoring the “footprint” of pharmacy access by allowing petrol stations to act as pick up depots. New Pharmacies are hardly worth much when they are right next door to older Pharmacies. I believe there are less than 20 independently owned Pharmacies in Norway now. Not good for those seeking ownership. Norway is similar to Australia in that there are large urban centers and then a large number of small and isolated communities .

Leave a reply